This price spike — to the highest level in more than a week — has now erased nearly half of the decline in natural gas prices over the past six weeks.

Traders say a government report of smaller-than-expected increase in storage levels has led to renewed focus on power demand, causing market participants to cover short positions as well as enticing some buyers.

"This was an extremely big surprise," said NYMEX floor trader John Woods. "Now you re-evaluate the trade."

The U.S. Energy Department reported natural gas in storage increased by 67 billion cubic feet (BCF) last week, less than the consensus estimate of 71 to 75 BCF, based on a Platts survey of analysts.

Analysts expectations ranged from injections of 59 to 85 BCF, according to Platts. Last year storage level built by 72 BCF — the five-year average, for this week of the year, is about 99 BCF.

"The market was wrong-footed ahead of the EIA number and the new shorts that piled in have turned and covered," said Eugene McGillan, a broker and trader with Tradition Energy in Stamford, CT. "Now we're triggering fresh technical buying."

Natural gas futures have crossed the 100-day moving average and are approaching another key technical resistance level near $2.50, traders say.

Fundamental data may have helped spark this move. Storage injections remain on a slower pace than a year ago, reducing the year-over-year storage overhang — which is bullish for prices, some analysts and traders say.

CitiFutures energy analyst Tim Evans says the latest EIA natural gas weekly storage report means, "there's not much reduction in coal-to-gas switching as had been anticipated or that production may have declined a bit in the latest period." Either way, says Evans, "it's a bullish surprise, and supportive" of prices.

In terms of coal-to-gas switching for power demand, there are basically two camps among participants in the natural gas market right now:

"One camp believes coal displacement will get harder as the summer wears on (owing to the need for forced coal burn and an expectation that US supply grows)," Barclays analysts Shiyang Wang and Michael Zenker said in a note to clients earlier this week. "The other camp believes the market will have no problem clearing surplus inventory from the market. These two camps have very different views on where gas prices go this summer."

Barclays analysts fall into the second camp, forecasting prices will range between $2.00-$2.50 per million BTUs this summer.

McGillan agrees natural gas prices should not dip below $2 this summer. "Gas prices as they approach $2 are undervalued," he says," especially as we approach the cooling season as well as pricing in this year's winter."